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CITY COUNCIL AGENDA ITEM NO. 4

Meeting Date: May 23, 2006

Subject/Title: Approve A Resolution of the City Council of the City of Brentwood approving and authorizing a procedure for the sale of KB CA Orchard affordable units and the amendment of resale restriction agreements and authorizing the City Manager to execute all necessary documents to effectuate such sales and amendments

Prepared by: Ellen Bonneville, Housing Manager

Submitted by: Howard Sword, Community Development Director

RECOMMENDATION
Approve the Resolution approving and authorizing a procedure for the sale of KB CA Orchard affordable units and the amendment of resale restriction agreements and authorizing the City Manager to execute all necessary documents to effectuate such sales and amendments.

PREVIOUS ACTION
In 2000, a condition of approval for the KB California Orchards subdivision provided that KB Homes construct and sell 20 units to low-income households.

BACKGROUND
The KB California Orchard Subdivision was approved and constructed between 2000 and 2003, prior to the adoption of the City’s Affordable Housing Ordinance and prior to the creation of the Housing Division. As a condition of approval for the subdivision, the City required KB Homes to construct and sell 20 affordable units. A Resale Restriction Agreement and Option to Purchase was recorded against each affordable unit. The restriction agreements require that the units be sold to low income households at a low income affordable housing cost (the sales price of a three-bedroom low income unit for 2006-07 is $144,000). These homes were sold at $200,000. The original units were sold to low income households at a cost that exceeded that for a low-income household and actually was in a price range for moderate-income households (the current range for moderate is $144,001 to $303,000).

The restriction agreement also limits the owners’ ability to refinance their homes in order to avoid loans in excess of the affordable housing cost. Approximately sixteen of the twenty original homeowner’s have refinanced in violation of their agreements. Most have refinanced their homes to amounts from $240,000 to $280,000. The current resale price for these units is approximately $220,000 – $225,000. The agreements include a 30-year covenant and, thus, do not count toward any Redevelopment requirements, which require a 45-year covenant. The current agreement also states that the agreement terminates in the event of a foreclosure on the home. This is a standard term that lenders, including CalHFA require in order to fund the purchase of affordable units.

Upon learning that owners had refinanced their mortgages in excess of what the agreement allowed, the City sent out option notices in early 2003 (prior to the creation of the Housing Division) notifying the owners that the City was exercising its option to purchase the homes. The City never completed these purchases. However, to date all of the units still have affordable covenants in effect. Two of the units were sold to Pulte Homes who resold them to very-low income households. One homeowner desired to sell her unit in 2005 and the Housing Subcommittee and City Council directed staff to amend the covenant to make the unit a moderate income unit. The sale closed successfully and the unit is now a moderate income unit, although the covenant remains a 30-year term. One other unit is currently in escrow to a qualified moderate-income family and upon resale will be under a new 45-year deed restricted covenant. One unit is currently in foreclosure and staff is working closely with the holder of the Deed of Trust to attempt to retain the affordability covenant on the property.

Staff is seeking direction from the City Council to assist in curing these violations of the current agreement(s) by amending the resale restriction policies and authorizing a procedure for the sale of these KB CA Orchard units. Staff is also seeking the approval of City Council to amend the resale restriction agreement and authorize the City Manager to execute all necessary documents to effectuate these new procedures. Therefore, staff recommends the following procedures be approved by the City Council in order to preserve the affordable units in this subdivision:

1. That the sale of KB California Orchard affordable homes be to persons and families of low or moderate income (as defined in California Health & Safety Code Section 50093, at the lower of (a) the lowest sales price, as determined by City Staff, that will allow the owner to repay their outstanding loans and any closing costs or fees, or (b) the Affordable Housing Cost as defined in California Health & Safety Code Section 50052.5, for a moderate income household, provided that the home will be covenanted by a Resale Restriction Agreement that meets the requirements below;

a. The amendment of the Resale Restriction Agreement to (i) require that the homes be sold to moderate income households at an affordable housing cost, and (ii) increases the term to 45 years.

b. Authorize the execution by the City Manager or her designee of an amended and restated or new Resale Restriction Agreement in a form approved by the City Attorney, as well as the execution of any and all other documents necessary to effectuate the sale and amendments outlined in this report.

2. The adoption of these procedures does not intend to limit the ability of the City to adopt other programs or approve other agreements that address any outstanding issues with the KB California Orchard affordable homes, such as allowing another developer to purchase the units and convert them to affordable homes more restrictive than outlined in Number 1.

With the approval of these procedures staff will have the flexibility to allow the homeowners to sell their homes at a price that will cover their refinanced cost while still preserving these units as affordable housing. The new Resale and Refinancing restriction agreements will extend the affordability an additional 15 years while also providing stronger safeguards against any potential violation of the agreement by including a performance Deed of Trust that will require the City staff be notified on any and all changes to the Deeds of Trust on these properties. The amended resale agreement title will change from “Resale Restriction Agreement” to “Refinancing and Resale Restriction Agreement”. This change will highlight the refinancing restriction to any and all lending institutions and title companies who might be considering offering a refinancing loan to a program participant.

FISCAL IMPACT
None.

Attachments
Resolution

CITY COUNCIL RESOLUTION NO.
A RESOLUTION OF THE CITY OF BRENTWOOD APPROVING AND AUTHORIZING A PROCEDURE FOR THE SALE OF KB CALIFORNIA ORCHARD AFFORDABLE UNITS AND THE AMENDMENT OF RESALE RESTRICTION AGREEMENTS AND AUTHORIZING THE CITY MANAGER TO EXECUTE ALL NECESSARY DOCUMENTS TO EFFECTUATE SUCH SALES AND AMENDMENTS
WHEREAS, prior to adoption of the City's Affordable Housing Program, the City required the developer of the KB CA Orchard subdivision to construct and sell 20 affordable units within the subdivision (each, a "KB CA Orchard Affordable Home").
WHEREAS, a Resale Restriction Agreement and Option to Purchase was recorded against each KB CA Orchard Affordable Home ("Resale Restriction Agreement").
WHEREAS, the Resale Restriction Agreements require that the KB CA Orchard Affordable Homes be sold to low income households at a low income affordable housing cost for a period of 30 years.
WHEREAS, several issues regarding compliance with the Resale Restriction Agreements have arisen and the City desires to set forth a procedure for their resolution, which procedure will be implemented upon the future sales of KB CA Orchard Affordable Homes.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF BRENTWOOD DOES HEREBY RESOLVE AS FOLLOWS:
1. In connection with the future sale of any KB CA Orchard Affordable Home covenanted with the original Resale Restriction Agreement, the City Council hereby approves and authorizes the following:
a. The sale of the home to persons and families of low or moderate income, as defined in California Health & Safety Code Section 50093 ("Moderate Income Households"), at the lower of (a) the lowest sales price, as determined by City staff, that will allow the owner to repay his or her outstanding loan(s), and any closing costs or fees, or (b) the Affordable Housing Cost, as defined in California Health & Safety Code Section 50052.5, for a Moderate Income Household, provided that the home will be covenanted by a Resale Restriction Agreement that meets the requirements of subsection (b) below;
b. The amendment of the Resale Restriction Agreement to (i) require that the home be sold to Moderate Income Households at an Affordable Housing Cost, and (ii) increase the term to 45 years; and
c. The execution by the City Manager or his or her designee of an amended and restated or new Resale Restriction Agreement, in a form approved by the City Attorney, as well as the execution of any and all other documents necessary to effectuate the sale and amendment outlined herein.
2. The City Council does not intend adoption of this resolution to limit the ability of the City to adopt other programs or procedures or to approve other agreements that address the outstanding issues with the KB CA Orchard Affordable Homes, such as allowing another developer to purchase the units and convert them to affordable homes with covenants more restrictive than outlined herein.

 

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